DRIVING THE DAY
1. No end to the anti-corruption campaign
The Party’s discipline commission (CCDI) held its last plenary session before the 19th Party Congress.
The key deliverable: A report laying out goals for the next five years. A draft was adopted at the plenum and will now be submitted to the Central Committee for final approval.
What to expect: There will be no letup in the anti-corruption campaign. That’s the message from the plenum communique and a CCDI editorial today (links below).
What to watch: Personnel moves. The CCDI has already been moving its people around within key Party and state organizations recently. We should see some new CCDI deputy heads emerge at the end of the Party congress.
Why it matters: The CCDI is at the heart of Xi Jinping’s drive to assert Party control throughout the system. The organization is arguably the most powerful in China, and it’s importance is set to increase further with the establishment of the National Supervisory Commission next year. Understanding where the CCDI is heading is key to understanding where China is heading.
Get excited: It’s 19th Party congress season! We have the Central Committee’s seventh plenum on Wednesday. That meeting will adopt the draft of the report that Xi will deliver when the Party congress begins on October 18.
FINANCE & ECONOMICS
2. Golden week is a boon for consumption
China’s consumers went all out for the week-long National Day holiday, both at home and abroad.
The China National Tourism Administration (CNTA) has some stats:
- 705 million tourists traveled in China during the holiday, generating RMB 583.6 billion yuan of revenue, an increase of 11.9% and 13.9% y/y, respectively.
- In addition, six million Chinese traveled to 1,155 cities in 88 countries or regions – a million more than in 2016.
The Commerce Ministry also recorded RMB 1.5 trillion in revenues for the retail and dining sectors during the holiday. That represents a 10.3% increase on last year. It’s no wonder that they call it “Golden Week”.
Some context: Retail and dining revenues were around RMB 33 trillion for all of 2016, and will be around RMB 36 trillion in 2017. That means Golden Week contributes around 4% of annual revenue for the two sectors. Not bad for eight days.
Get smart: Various data points suggested consumption is strong.
- CNTA: 2017年国庆中秋假日旅游市场情况总结
- Xinhua: Economic Watch: Tourism booming during China’s National Day holiday
- MofCoM: “十一”黄金周市场繁荣 消费升级增强百姓获得感
FINANCE & ECONOMICS
3. Did the central bank just ease monetary policy?
The PBoC held its Q3 monetary policy meeting on September 30. It reiterated its “prudent and neutral” monetary stance.
But… The central bank also announced an upcoming cut to banks’ reserve requirement ratios (RRRs) starting in January 2018.
Some details: Any bank whose qualifying loans to small businesses (and other under-served parts of the economy) represent 1.5% of its loan book in 2017 will see a 50-basis-point reduction in its RRR beginning in January 2018. Banks meeting more stringent criteria could see a further 100-basis-point reduction.
Some context: The decision was made at the direction of the State Council (see the Sep 28 Tip Sheet), which has been intently focused on finding ways to support small businesses.
Get smart: The RRR cut is NOT about monetary policy or liquidity maintenance. It’s an effort to funnel more credit to small businesses in China.
The bottom line: The move will not alter overall credit or liquidity dynamics in China.
Get more: We have in-depth analysis and implications in our weekly finance note. Send an email to email@example.com to trial our premium subscription service.
POLITICS & POLICY
4. China models US drug and medical device approval system
The general offices of the CCP Central Committee and the State Council jointly released a document on reforming the system for approving medications and medical devices.
It’s pretty technical stuff, but very important for those in the industry. Some highlights:
- The process for conducting clinical trials will be simplified
- Data from overseas clinical trials will be accepted for drug registrations
- A new patent linkage system to protect patented drugs from generics will be established
- There will be compulsory licensing of patented drugs in areas that pose a major risk to public health
- The process to get new drugs included in public health insurance coverage will be streamlined
What it means: People in the industry tell us the overhaul is huge. If fully fleshed out and implemented by China’s drug regulator (CFDA), the new system should give a boost to innovative pharmaceutical and medical device companies.
Get smart: MNCs are going to face more competition from Chinese players.
Get smarter: The biggest problem for MNCs is strict requirements that hospitals use as many Chinese-made drugs and medical devices as possible. From our observations, compliance is high.
- State Council: 中共中央办公厅 国务院办公厅印发《
- Bloomberg: China Overhauls Drug Approvals in Win for Global Pharma
POLITICS & POLICY
5. Xi’s Marxism
Xi Jinping chaired a Politburo study session right before the holiday.
The topic: Sinicizing Marxism.
Here’s what Xi said (via People’s Daily)：
- “If we deviate from or abandon Marxism, our Party will lose its soul and direction”
- “the Chinese people are more qualified and capable of… making original contributions to… Marxism”
- “[We] must focus on what we are doing now, listen to the people, respond to real needs … [and] combine basic Marxist theories with China’s specific reality”
- “The CPC should … learn from the achievements of other civilizations to… develop Marxism”
Get smart: It may sound esoteric, but Xi is dead serious about creating “Chinese Marxism”. He knows it’s key to justifying CCP rule.
What to watch: Whether or not Xi gets his contribution to the Party’s guiding ideology enshrined in the Party constitution at the congress.
Don’t know what that means? Send us an email and we can set up a time to explain it, and why it matters for your business.
- People’s Daily: 习近平：深刻认识马克思主义时代意义和现实意义 继续推进马克思主义中国化时代化大众化
- Xinhua: Xi calls for profound understanding of Marxism
POLITICS & POLICY
6. The Party goes tiger hunting
The CCDI completed its investigation of Sun Zhengcai, the former Politburo member once considered a contender to replace Xi Jinping in 2022.
The Party’s judgment of Sun was the most severe we’ve seen in the last five years.
The message: No one is off-limits.
- People’s Daily: 中共中央决定给予孙政才开除党籍、开除公职处分
POLITICS & POLICY
7. The Party goes fly swatting
Tigers get all the attention, but most of the CCDI’s efforts have been focused on swatting flies (Xinhua):
- “The Communist Party of China’s (CPC) top disciplinary watchdog said Sunday around 1.343 million grassroots-level Party officials around the country had been punished between the time of the 18th CPC National Congress in 2012 and the end of June this year.”
- “These officials served at the town- or township-level or lower, including 648,000 village officials, according to a statement by the CPC Central Commission for Discipline Inspection (CCDI).”
- “The CCDI said it had conducted inspection and supervision of 155,000 Party organizations in the past five years, transferring 65,000 pieces of evidence about problems involving officials for further investigation.”
Get smart: The scale of the investigations shows the scale of the problem. Xi’s war against corruption is far from over.